Thursday, June 16, 2011

Greedy developers wait for the next boom in 30 years time

Ireland’s prettiest ghost estate: Quaint £700,000 thatched cottages sit empty

No one can afford these monstrosities. Perhaps the fact that they started at an asking price of 820,000 euros (£700,000) each, when auctioneers say they are now worth just 200,000 euros (£175,000), is the reason they lie empty. The developer of the estate says he 'missed the market' at its peak by a matter of months.

Posted by miken @ 09:38 PM (2681 views)
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27 thoughts on “Greedy developers wait for the next boom in 30 years time

  • box thinker says:

    Would it be a great stretch of the imagination to see these houses up for sale at around £30,000 in the next 2 years?

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  • mark wadsworth says:

    Those cottages look quite cute if there are only one or two in the picture, but once you can see there’s a whole estate of them they look really weird. Did the developer not realise that if you want to make an estate look long established and Olde Worlde, that all the buildings have to look a bit different?

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  • The auctioneers say they are worth about £75K, but what price do we think the developers will ask, when they re-launche the site?

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  • Box thinker
    Yes, £30k is very unlikely
    Will
    200k euros £175kish.

    Yes quite bizarre to see an estate of thatched cottages.

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  • 2. mark wadsworth,

    Now would involve some skill, imagination and diligence.

    Something that has been lost, but will have to be rekindled throughout the years to come.

    “Lazy lemon, lazy chef.”

    ~ Gordon Ramsay

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  • sibley's b'stard child says:

    ‘Knock them down’ say the locals.

    Yeah, cos that’s the solution to over-priced housing; let’s have less of them

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  • mark wadsworth says:

    The point is that reality and illusion are compeltely inverted.

    The only reason why houses have value is because of their location, which country they are in, where they are in that country, what wages are like within easy commuting distance, how good local services are (whether privately or publicly provided) etc.

    The most sumptuous and beautiful five bed detached house with a large garden is nigh worthless if it’s on an otherwise uninhabited and inaccessible remote Scottish island. e.g. We all know that guesstimating the rental or selling value of any physical depends on “Location, location, location”. So, the sum total of all location values in any country is a fairly fixed figure (which basically depends on how well the economy is doing and how efficient the government is).

    This fairly fixed total figure cannot be increased by simply building more houses, however pretty they may look – in the short term, all they do is dilute this total location value over a larger area, and if it is diluted enough by building massive new estates deep into the countryside there comes a cut off gradient where the rental value of the house is less than its diluted location value and that house is basically unrentable/unsellable unless it is rented/sold for such a low value that does not even cover the maintenance/building/notional interest cost.

    So although your eye may tell you that this is a nice looking estate, this is not the reality – this is the illusion!

    The reality is not the bricks and mortar, the reality is the location, and even the location is not cast in stone and real and solid for ever and ever – if a new railway station is opened which suddenly brings it within easy commuting distance of a town with lots of jobs, the location value rockets, and if a large local employer goes bankrupt, then the location value plummets.

    For another nice inversion of reality and illusion, I refer you to the Home-Owner-Ist mantra that “Rising house prices makes us wealthier” when in fact they make us poorer.

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  • Mark,
    Yes, but in the boom years prices were rising with a constant “location location location”. And there were noises about a “shortage”. Same kind of thing that one sometimes hears on these pages in fact…
    N

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  • What MW said, the first picture looks quite nice, cut to the next with a row of the little buggers and it all looks rather odd… kind of Olde Worlde council housing.

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  • mark wadsworth says:

    NickB, the “location/shortage” did and does stack up with regards to towns and cities (albeit the shortage is artificial and the location value is created by everybody).

    But these weird looking cottages are not in a particularly desirable location and there is neither a shortage of the houses (in Ireland) nor of such low value locations (in the UK there is physical space for about a billion people or something).

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  • Agree that making them all the same is a bit wierd, and that the whole thing is a bit pretentious.

    Thatch costs a lot to maintain and insure, so they’re a bit of a liability for anyone thinking of buying one.

    But why should they now be worth 200,000 euros? I doubt they cost half that to build.

    Ireland hasn’t yet got to the point of realising that if you have too many houses, selling them for significantly more than the construction cost is off the agenda.

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  • Mark,
    Prices are falling even in Dublin. So, there was a shortage but now there is a glut? How is this different from there not being a shortage all along? It seems to me that the perception of shortage / surplus is a mirage tied to credit conditions.
    UT
    Once built, are not the houses are worth what people can be persuaded to borrow to buy them, in the expectation of selling them for an expected profit? If so, it’s completely detatched from building cost, except in so far as that is correlated with quality.
    N

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  • mark wadsworth says:

    Nick B, I was thinking more about rental values, which are far more real and stable than selling prices, which can (and do) yo-yo up and down like made. Hence the expression “y-o-y falls”. Selling prices, as we know, depend on credit conditions and bubble fever.

    I agree with your reply to Uncle Tom. Build costs are only one factor in the value of a house, you can build the nicest house in the world next to a sewage works in an area with subsidience and it is nigh worthless. If you build a wooden shack overlooking a popular beach, it can be worth £100,000s.

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  • nickb,

    The price of everything comes down to supply and demand. Easy credit only really fuels house prices when the demand side is driven by speculative greed.

    People do not automatically borrow the maximum amount possible, but if they believe that by doing so, they will enrich themselves, then that is what happens.

    In addition, homes are a consumer durable, and their failure to depreciate in value with the passage of time is a relatively recent (last 30 years or so..) aberration from the normal order of things.

    When countries like Ireland, Spain, and parts of the USA have a clear surplus of property, one should expect a normal market to emerge when the current drama has played itself out.

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  • mark wadsworth says:

    UT: “homes are a consumer durable, and their failure to depreciate in value with the passage of time is a relatively recent (last 30 years or so..) aberration from the normal order of things.”

    The bricks and mortar bit does depreciate quite rapidly if a building is left vacant – it’s the location value that has a tendency to appreciate over time in line with economic growth (and has done since time immemorial), whether the bricks and mortar are maintained or not, and even if there is no building on the site whatsoever.

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  • Yes they might look a bit odd, but they’re much better than the rabbit hutches we see built in the UK. At least the Irish have a notion of aesthetic appeal in their new-builds.

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  • Agree that premium locations have become more sought after in recent years – whether this trend will continue, stall, or reverse is a hard call.

    The rarity of such locations obviously propels their value, but if a whole region carries a premium, then there is either a deficit on the supply side that needs to be addressed or there are disparities in prosperity that government should review.

    In the case of the UK, the centre of wealth creation and infrastructure has been far too focused on the capital. We need better road and rail communications on routes that are not radiating from London, and should close Gatwick or Stansted in favour of a new hub airport in the North west – ideally equidistant from Manchester, Liverpool & Birmingham..

    Ultimately, premium locations as far as residential property is concerned should be the exception, not the rule.

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  • UT,
    Sure, supply and demand. Demand is willingness to pay backed by ability to pay, both are functions of credit conditions, whether easy or hard. A house, once built, is supplied. So the price of those houses (selling, not asking) ultimately will have little to do with what they cost to build.
    N

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  • In a ‘normal’ market, a ‘normal’ house (i.e. non-premium located) should sell when new for around 25% over build cost – most of that being the ‘normal’ margin for a developer, plus a small consideration for the land on which it is located.

    When the first owner sells it, it becomes a second-hand house, and in a ‘normal’ market would be discounted – like any other second hand consumer durable. As the development nears the end of its design life, so its value drops to near zero.

    If that sounds incredible, be aware that less than fifty years ago, UK houses sold for re-development sometimes realised as little as £40 – well under £1k in today’s money.

    When considering where the property markets of countries like Ireland are going, build cost provides a good reference point. If houses like this start selling for much less than they cost to construct, it might be considered a sound move to invest; but given that this is a market in clear surplus, buying in at build cost + 100% (or more) would be very unwise.

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  • Incidentally, I have the benefit of the full title deeds for my home, going back to its construction in 1869. It remained in the possession of the same family (but always tenanted) for its first century.

    In January 1969, this very second hand house, then in its 100th year; was valued for probate at just £305.

    It is now (supposedly..) worth over 1000 times as much…

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  • mark wadsworth says:

    UT, even by 1960s standards, £305 isn’t much. An average house cost somewhere between £5,000 and £10,000 at the time, so that must be a deliberately low valuation. But apart from that, point taken.

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  • Sorry to get in so late, but this estate is just the place for The Prisoner (ancient TV series with recent re-make). The Prisoner goes from house to house trying to find somebody on his side who’ll help him get out of The Village. Eventually he makes it to the next village, which is…….Poundbury.

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  • MW,

    Yes, it probably was a deliberate undervaluation. However, in 1967 my parents a brand spanking new 3 bed house in Harlow for (IIRC) £3250 – which if you add inflation equates to £45k today..

    OK, build specs have improved a little over the years since then, but there is absolutely no moral justification for denying young people the opportunity to buy decent new first home for under £60k – or if that is too expensive, a used house in Harlow (vintage c.1967) for half that amount or less..

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  • “The only reason why houses have value is because of their location, which country they are in, where they are in that country, what wages are like within easy commuting distance, how good local services are (whether privately or publicly provided) etc. ”

    not omitting one very important element:- “what people expect them to be worth in a given timeframe”

    The speculative element is where all our banks, brokers and estate agents thrive, since the other factors are utterly logical. Where there’s doubt, there’s potential.

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  • mark wadsworth says:

    Icarus, these ghost estates make a fantastic back drop for films – you ought to go see “Killers” with Ashton Kutscher & Kathy Heigel where they smash up half an estate.

    Apart from that, the film is surprisingly “not as bad as you’d expect”.

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  • OK maybe monstrosities was a bit strong. I suppose they look odd because they have not been lived in and it’s unusual to see so many identical thatched cottages in one row. Once people live in them then maybe they get more of an individual character which they so desperately need.

    I agree with UT, there is absolutely no moral justification for denying young people the opportunity to buy decent new first home.
    The housing market needs a revolution to help out young people. I thought the factory built houses was a step in the right direction so long as they are of reasonable quality. If such companies could be given priority then the housing problems of young people would soon be resolved.

    As I might have mentioned before. Banning people from owning more than one apartment is also another critical step.

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  • miken,

    Theory is always one thing, and reality another. What ought to happen, and what can pass muster with the electorate can seem light years apart, so what compromise could the govt deliver?

    One intriguing possibility is the release of state surplus land (read MoD surplus) for development, subject to three permanent covenants:

    1) That the homes must be owner occupied.

    2) That the owners (eldest if jointly owned) must have been born on or after 1/1/1980.

    3) That the initial developer must not ask more than £1,000 per square metre for the completed dwelling.

    – Mileage??

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